The U.S. Market for Private-Label Credit Cards - 2nd Edition

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Published Apr 1, 2000 | 215 Pages | Pub ID: LA576

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The $100 billion market for private-label credit cards is undergoing a sweeping transformation in which the fundamental issues of profitability and control are being challenged. This study examines the response of retailers to monumental issues, including the broad trend to third-party outsourcing, new store card activity among all types of retailers and fledgling attempts to position store card credit instruments in the new world of e-tailing. The most current statistics are provided on market size and growth, along with profiles of major store card retailers and leading payment processors. Also provided are consumer profiles of store card use.
  1. Executive Summary

    The Products

      Scope of Study
      Methodology: Evaluation of Five Sources
      Three Market Segments
      Retail Cards
      Oil Cards
      Travel Service Cards
      Two PLCC Types
      Revolving-Credit Cards Play Dominant Role
      PLCCs Issued Directly or Indirectly
      PLCCs as Marketing Tools
      PLCCs: Benefits to Retailers
      PLCCs: Benefits to Consumers

    The Market

      PLCC Market Worth Close to $90 Billion in 1999
      Table 1-1: Estimated Size and Growth of Private-Label Credit Cards, 1993-1999 (dollars, percent change)
      Growth Flattening
      Market Still in Positive Mode
      A Projected Rise to Near $95 Billion
      Table 1-2: U.S. Private-Label Credit Card Market: Projected Receivables, 1999-2004 (dollars, percent change)
      Units in Circulation: Retail vs. Oil Cards
      Table 1-3: Estimated Number of Private-Label Credit Cards in Circulation, 1995-1999 (units, retail and oil cards)
      Renewal Hinges on Outcome of Larger Battles
      Two Battlefronts: External and Internal
      Factors in Growth Present Paradoxical Aspects
      The Economy: Good Times Favor Bank Cards
      Will the Next Recession Favor PLCCs?
      Store Cards May Benefit from Middle Class Fissure
      Demographics: Elderly PLCC Base
      Aging Population Could Be Positive for PLCCs
      Technology: Financiers Appear in Control
      But Retailers Potentially Benefit from Advanced Data-Mining Software
      A Great Potential Negative: Retailers and the Internet
      The Internal Battlefront: Retailers vs. Retailers
      Disinflation and Retail Dynamics
      PLCCs and Mass Merchandisers/Department Stores

    The Marketers

      Sears Dominates PLCC Market with One-Third Share
      GEC in Solid Second Place
      Household, Penney, The Associates Round out Top Five
      Ten Issuers in Second Tier
      Table 1-4: Market Share: Top Fifteen Store Card Issuers, 1999 (percent share)
      Oil Card Leaders: Chevron and Mobil
      Bank Card Flexibility Threatening Store Cards
      Competition from the Subprime Market
      Micromarketing the Goal
      Competitive Pressures Lead to Outsourcing Trend
      From Outsourcing to Co-Branding
      Co-Branding Proponents
      Co-Branding Critics
      Head-to-Head Rivalry among Third Parties for Outsourced Accounts
      Third Parties Compete on Type, Degree of Services Offered
      Consolidation Intensifies Competition
      Dramatic Changes in Oil Card Control

    Payment Processors

      Payment Transaction a Complex Affair
      Process Can Be Simplified with PLCCs
      Front-Office, Core Processing, Back-Office
      Top PLCC Processors: First Data, Total System, and Alliance Data
      Battle Shapes Up Between First Data and Total

    The Consumer

      Private-Label Credit Cards: Nine Types Covered
      Number of Owners/Users: By PLCC Type
      Retail Cards Skewed to Female Base
      Oil, Travel Cards More Evenly Distributed
      General Factors in PLCC Ownership/Use
  2. The Products

    Introduction

      Scope of Study
      Products Included
      Products Excluded
      Contrasting Principles: Exclusivity vs. Inclusivity
      A Gray Area

    Terminology

      Terms Used for Private-Label Cards
      Terms Used For General-Purpose Cards
      Shortcomings in Shorthand Terms: "Store"/"Single-Purpose"
      Shortcomings in Terms: "Bank"/"General-Purpose"
      Shorthand Terms Used Liberally

    Overview: The Credit Card Industry

      Private Label Cards in Context
      General-Purpose vs. Private-Label Cards
      GPCCs: Charge vs. Revolving Cards
      Charge Cards
      Revolving Cards
      Two GPCC Variations: Co-Branded and Affinity
      Corporate-Purchasing Cards
      Debit Cards
      Smart Cards
      Stored-Value Cards

    Overview: Private-Label Credit Cards

      Private-Label Credit Cards (PLCCs) Defined
      Three Market Segments
      Retail Cards
      Oil Cards
      Travel Service Cards
      Excluded: Commercial and Institutional Cards
      Two PLCC Types
      Charge Cards Play Minor Role
      Revolving-Credit Cards Play Dominant Role
      "Receivables" Defined
      PLCCs Issued Directly or Indirectly
      Third-Party Issuers Own Receivables
      Technical Distinction: "Proprietary" vs. "Private-Label"
      Third Parties Take on Operational and Legal Control
      Outsourcing Advantages
      Major Retailers Retain Control
      Credit Card Operations: Procedures
      Payment Processors
      Processors Become Players
      Third-Party Processors: Evolution to Specialists

    PLCC Attributes

      Overview: Private-Label Programs
      Private Labels Are Versatile Strategic Tools
      Not Necessarily Profit Centers
      PLCCs as Marketing Tools
      PLCCs as Profit Centers
      PLCCs and Interest Rates
      PLCCs: Benefits to Retailers
      Stimulate Store Sales
      Generate Customer Loyalty
      Allow Retailer Control
      Provide a Wealth of Information
      PLCCs: Benefits to Consumers
      Broader Credit Acceptance
      Psychological and Practical Benefits

    History: Retail Cards

      Explanatory Note
      Overview: Credit Cards an American Invention
      Industrialization/Urbanization Set Stage for Acceptance
      Original Credit Cards: Retail Cards
      Three Early Types of Retail Credit
      Term Credit for Farmers
      Open-Book Credit for Regular, Best Customers
      Installment Credit for Everyone's High-Ticket Items
      Early 1900s: Installment, Open-Book Credit Adopted by Department Stores
      1914: Original Retail Cards Issued to Wealthy
      Oil Companies and Hotels Take up Concept
      1928: Charge-A-Plates Debut
      A Fundamental Trend Emerges: Class to Mass
      The Depressions Boosts Need for Credit (Loans)
      Open-Book and Charge-Card Credit Prove Outmoded
      Solution: Revolving-Credit Cards
      Revolving-Credit Concept Refined at Gimbel's
      Revolving-Credit Cards Perfected in 1956
      Retailers Reap Benefits of Streamlined System
      Three-Tiered Credit Operations
      Finally, Profit Expectations
      The Golden Age of Store Cards
      Retailers Retain Dominance Despite Slight Problem
      Status Quo Begins to Shift to Bank Cards
      Bank Incursions Meet Retail Resistance—For the Worse
      First Retailer Impulse: Close Ranks
      Small Retailers Succumb to Bank Card Charms
      Large Retailers Form Protectionist Bloc
      Regionals Left Suspended on Horns of Dilemma
      NRMA Recommendations: Outsourcing
      Origin of Outsourcing in 1930s' Retail Cooperatives
      Tony NYC Co-ops Offer Mutual Plates
      Notching Gives Rise to Processors
      Issuers/Processors At First Make Little Headway
      GE Capital the Significant Exception
      NRMA Recommends Outsourcing to GECC
      GECC's Third-Party Plan
      GE Capital Capitalizes
      Other Third Parties Enter the Picture
      Large Retailer Resistance to GPCCs Finally Crumbles
      1980s: Deceptive Perception of PLCC Dominance Retained
      1990s: Deceptive Perception Defenestrated
      Yet PLCCs Maintain Strength

    History: Oil Cards

      Oil Cards Introduced in Early 1900s
      A Positive Marketing Tool to Gain Share
      But Oil Cards Are Money Losers
      Combined Oversupply and Low-Ticket Purchases
      Traditional Company Loyalty to Oil Cards Transforming
      The Original "Courtesy" Cards
      Extremely Popular, Until the Depression
      Mass Distribution by Amoco in 1939
      Massive Fraud Results
      Fundamental Issues Raised
      Plastic Credit Card Prototype Invented by Chevron
      Oil Companies: Resist, Accept, Resist Bank Cards
      Atlantic Richfield: Outsourcing, Then Dropping Credit
      Outsourcing in the 1990s
  3. The Market

    Market Size, Growth, and Composition

      Methodology: Evaluation of Five Sources
      Conservative Estimates
      Sales Reckoned in Receivables
      PLCC Market Worth Close to $90 Billion in 1999
      Table 3-1: Estimated Size and Growth of Private-Label Credit Cards, 1993-1999 (dollars, percent change)
      Growth Flattening
      Market Still in Positive Mode
      Growth Dynamics: 1993-1996
      Growth Attenuates Since 1997
      Overall Dollar Share: GPCCs Extend Lead over PLCCs
      Table 3-2: Oil Cards and Receivables
      Oil Cards as Inverse Indicators
      Oil Cards: Minor Share of PLCC Sales
      Units in Circulation: Retail vs. Oil Cards
      Table 3-3: Estimated Number of Private-Label Credit Cards in Circulation, 1995-1999 (units, retail and oil cards)
      Units in Circulation: PLCCs vs. GPCCs

    Factors in Future Growth

      Overshadowing Question: Do PLCCs Have a Future?
      Proponent Responses to Skeptics
      Fate of Store Cards Tied to Middle Class
      Endurance vs. Growth
      Renewal Hinges on Outcome of Larger Battles
      Two Battlefronts: External and Internal
      Factors in Growth Present Paradoxical Aspects
      The External Battlefront: Financiers vs. Retailers
      The Economy: Good Times Favor Bank Cards
      Some Evidence
      Looming Threat: Banks Consolidating Power
      Bank Co-Brand Cards Exploit Rigid Store Card Rates
      Bank Cards Encroach on Store Cards' Turf
      Banks' Natural Advantage
      Will the Next Recession Favor PLCCs?
      The Splitting of the Middle Class
      The Bankruptcy Factor
      Store Cards May Benefit from Middle Class Fissure
      Demographics: Elderly PLCC Base
      Aging Population Could Be Positive for PLCCs
      Aging Baby Boomers and Credit Cards
      Youth Trends Look Promising
      Untapped Demographic Potential: Race/Ethnicity
      Technology: Financiers Appear in Control
      But Retailers Potentially Benefit from Advanced Data-Mining Software
      A Great Potential Negative: Retailers and the Internet
      The Internal Battlefront: Retailers vs. Retailers
      Disinflation and Retail Dynamics
      PLCCs and Discount Chains
      PLCCs and Specialty Stores
      PLCCs and Mass Merchandisers/Department Stores
      Lowering Interest Rates: A Weapon Goes Unused
      Except for Wal-Mart
      The "Overstoring" Phenomenon
      Overstoring: The Bright Side
      Retailers Rush to "Incentivize" Their Cards
      The Gloomy Side of Overstoring: Brick-and-Mortar vs. Dot.Com Bazaar
      No "E-Tail" PLCC Presence Yet—But Could Be for the Best
      Outsourcing Trend Positive under Present Conditions
      Outsourcing Mitigates Reaffirmation Scandal
      Outsourcing and Oil Cards

    Market Projections

      Macrotrends Could Cut Either Way
      A Projected Rise to Near $95 Billion
      Table 3-4: U.S. Private-Label Credit Card Market: Projected Receivables, 1999-2004 (dollars, percent change)
  4. The Marketers

    Store Card Issuers

      Two Basic Types: Retailers and Third Parties
      Slight Complexity: Retailer-Chartered Banks/Thrifts
      Number of Store Card Issuers: Retailers Lead Third Parties
      Retailer Issuers: Sears Dominates, Penney No. 2
      The Second Tier: Mostly Department Stores
      Table 4-1: Leading Retailer Issuers, 1999 (dollars, percent share)
      Retailer Issuers: Significant Minors
      Table 4-2: Retailer Issuers of PLCCs, 1999 (companies)
      Third-Party Issuers: GE Card Services on Top, Followed by Household
      Second Tier Led by The Associates
      Table 4-3: Leading Third-Party Issuers, 1999 (dollars, percent share)
      Third-Party Issuers: Significant Minors
      Top Three in Cardholder Accounts: GEC, Sears, Alliance Data
      Table 4-4: Leading PLCC Issuers: By Number of Cardholder Accounts, 1999
      Cardholder Accounts vs. Receivables

    Store Card Issuers: Market Share

      Sears Dominates with One-Third Share
      GEC in Solid Second Place
      Household, Penney, The Associates Round out Top Five
      Ten Issuers in Second Tier
      Table 4-5: Market Share: Top Fifteen Store Card Issuers, 1999 (percent share)

    Oil Card Issuers: Market Share

      Explanatory Note
      Oil Card Leaders: Chevron and Mobil
      Tosco Now Leads Second Tier
      Table 4-6: Leading Oil Company Card Issuers, January 1, 1999 (number of accounts, charge volume)

    The Competitive Situation: Store Cards vs. Bank Cards

      Store Cards Do Not Compete against Each Other
      Bank Cards Major Direct Competitors
      Bank Card Flexibility Threatening Store Cards
      GPCCs Encroach on PLCC Turf
      Competition from the Subprime Market
      To Compete, Store Cards Need Special Extra Value
      Mimicking Bank Card Rewards Systems
      Store Cards Must Go Further to Add Value
      Micromarketing the Goal, But Formidable Obstacles Remain
      Competitive Pressures Lead to Outsourcing Trend
      Table 4-7: PLCC Programs Outsourced to Third Parties, 1998-1999 (companies)
      Outsourcing Permanent? The Bottom-Line Squeeze
      The Warfare in Retailing
      The Decay of Predictability
      Retailers Lack Technological Resources
      Cyclical Outsourcing and Y2K
      Outsourcing Processing—But Not Issuing
      From Outsourcing to Co-Branding
      Co-Branding Proponents
      Co-Branding Critics
      A Wry View of Pros and Cons
      Wal-Mart and the Co-Brand Approach
      Various Recent Experiments with Co-Branding
      Gottschalks: Co-Branding's Most Vehement Opponent
      Stores vs. Bank Cards: Antitrust Suit against Visa and Mastercard
      The Reaffirmation Scandal: First Panic, Then Swift Resolution
      Sears Leading Offender, But Others Involved

    The Competitive Situation: Third-Party Issuers

      Head-to-Head Rivalry among Third Parties for Outsourced Accounts
      Third Parties Compete on Type, Degree of Services Offered
      Short-Term Contracts Lead to Cyclical Switching
      Competing through Specialization: Small-Account Services
      Targeting a Retail Niche
      Creating New Retail Niches
      A Muted PLCC Rivalry between Finance Companies and Banks
      The Rise and Fall of Banc One
      Citicorp's More Successful Approach
      A Turn of the Screw: Gateway's Novel Approach to Third-Party Competition

    The Competitive Situation: Consolidation

      Consolidation Intensifies Competition
      Recent Consolidation Events in the PLCC Market
      Ongoing Consolidation in Retailing
      The Impact of Retail Turmoil on PLCCs
      Nordstrom Breaks New Ground in Retailer/Financial Consolidation

    The Competitive Situation: Oil Cards

      Dramatic Changes in Oil Card Control
      Resource Squeeze Leads to Widespread Outsourcing

    Competitive Profile: Sears, Roebuck & Co.

      Sears in a Class by Itself
      Enormous Number of Accounts
      Active Accounts Less Impressive
      Still, Sears Cards Are Most Profitable in PLCC Market
      Reasons for Sears' Total Dominance
      Sears Finally Accepts Bank Cards—Crisis Ensues
      Basic Features of the Sears Card
      Store Card Niche Loyalty Programs
      1994-1997: The Ambitious Era
      Initiatives Hit Wall in '97
      Took Desperate Measures
      The Reaffirmation Scandal
      Breach of Contract
      1998: Sears Cleans Its Slate
      Sears Takes Unprecedented Step: Outsources Processing
      Justifications
      A Renaissance?

    Competitive Profile: GE Card Services (GEC)

      GE Capital a Sprawling Credit Enterprise
      GEC No. 2 in PLCC Market
      Godfather of Third Parties
      Comprehensive Menu of Services
      PLCC Portfolio Flat
      Response: Sell Off Bank Cards, Embrace Store Cards
      GEC Bails Out Ward
      Receives Signature
      GEC Best Poised to Enter New E-Tail, MicroMarket Universe
      Amazingly, GEC Outsources Processing to First Data

    Competitive Profile: Household Retail Services USA

      A Top U.S. Finance Company
      Already Strong Presence Bolstered by Beneficial Acquisition
      PLCC Portfolio Ends Up Top-Heavy with Bottom End
      Household on Tenuous Foundation
      Foundation Fortified by Household Strengths
      Household Prunes, Refocuses

    Competitive Profile: JC Penney Co., Inc.

      No. 2 Retailer Issuer
      PLCC Program Plunging
      Reflects Penney's Overall Struggles
      JCP: A PLCC Pioneer
      Penney's Recent Moves Fail
      1998: Huge Holiday Season PLCC Marketing Push
      JCP Seeks Third Party
      Outsourcing Makes Sense for Penney

    Competitive Profile: The Associates National Bank

      Out of Nowhere to No. 5
      Original Focus on Oil Cards
      Acquires SPS in 1998
      SPS a Major PLCC Issuer
      SPS Offers Impressive Array of Services
      Associates Out to Dominate Oil Cards
      Oil Card Co-Brands
      How to Profit Off Fickle Oil Cards
      Offering Enhanced Reward Programs

    Marketing/Product Trends

      Small-Scale Rewards Programs
      Discount-Type Offers
      Sales Events
      Service-Type Rewards
      Merchandise Rewards for Co-Brand Cards
      Cards as Micromarketing Vehicles
      Macy's Customized Card Program
      Hudson's Bay: Most Comprehensive Store Card Program in North America
      The Zed Card
      HB's Numerous Value Enhancements
      HB's Advanced Technology
      Maintaining the Program In-House
      Trend to Card Stratification
      Gift Cards
      Kmart a Gift Card Pioneer
      All the Rage During '99 Holiday Season
      Gift Card Trend Could Encourage PLCC Experimentation
      Combination Credit/Loyalty Cards
      Multi-Merchant Loyalty Programs
      The "Interest-Less" Store Card
      Discounters and Store Cards: Troubles?
      Target's Card Seems on Track
      Wal-Mart's Commercial Card
      Store Cards and the Internet
      Third Parties Offer E-Tail Payment Options
      Trends in Oil Cards

    Advertising/Promotion

      Little Consumer Advertising
      Value, Convenience Positioning
      Rare TV Spots
      Latest Ad Trend: Travel Service Cards

    Consumer Promotion

      PLCCs Commonly Promoted Rather Than Advertised
      In-Store Promotion
      Catalog Promotion
      Rebates
      Charity, Cause Promotions
      Contests
      Collaborative Promotion

    Trade Advertising

      Third Parties Use Two Themes
      The "Comprehensive" Theme
      The "Flexibility" Theme
  5. v. payment processing

    Overview: Payment Processors

      Payment Transaction a Complex Affair
      Process Can Be Simplified with PLCCs
      Front-Office, Core Processing, Back-Office
      Leading Payment Processors
      Some Processors Become Store Card Issuers
      Top PLCC Processors: First Data, Total System, and Alliance Data
      Battle Shapes Up Between First Data and Total

    Competitive Profile: First Data Corporation

      First Data Covers All the Bases
      A World Leader in Processing
      "Behind-the-Scenes" Partnerships
      Recent Statistics
      First Data's Mid-1990s' Acquisition Binge
      Overextended at a Bad Time
      A Blow: Sears Goes with Total
      1998: Restructuring
      Pay Off: First Data Lands GEC Account
      First Data and Wal-Mart

    Competitive Profile: Total System Services

      TSS Rises to No. 2
      Transactions Grow Strongly
      A Huge Cardholder Account Base
      1996: Upgrades and Forms J-V with Visa
      Total System Services Scores Two Coups in 1998
      TSS Shaping Up as Formidable Rival to First Data
  6. The Consumer

    Ownership and Use of PLCCs

      Note on Simmons Market Research Bureau Data
      All Credit Cards: Number of Owners/Users
      Private-Label Credit Cards: Nine Types Covered
      Number of Owners/Users: By PLCC Type
      Table 6-1: Number of Credit Card Owners/Users: All and Private-Label Credit Cards by Type (number, percent)
      Retail Cards Skewed to Female Base
      Oil, Travel Cards More Evenly Distributed
      Table 6-2: Number and Percentage of Private-Label Credit Card Owners/Users: By Sex (number, percent, index)
      Frequency of Use by PLCC Type
      Table 6-3: Number of Private-Label Credit Card Owners/Users: Frequency of Use by Type (number, percent)

    Factors in Ownership and Use of PLCCs

      Factors: All Credit Cards
      Owners/Users: Upscale Profile
      Table 6-4: Demographic Characteristics Favoring Ownership and Use of Credit Cards: General-Purpose and Private-Label Credit Cards
      General Factors in PLCC Ownership/Use
      Factors: Sears Cardholders
      Factors: JC Penney Cardholders
      Factors: Montgomery Ward Cardholders
      Factors: Department Store Cardholders
      Factors: Clothing/Specialty Store Cardholders
      Factors: Oil Card Holders
      Factors: Travel Card Holders
      Table 6-5A: Demographic Characteristics Favoring Ownership and Use of Private-Label Credit Cards: Mass Merchandiser Retail Cards
      Table 6-5B: Demographic Characteristics Favoring Ownership and Use of Private-Label Credit Cards: Other Retail Cards
      Table 6-5C: Demographic Characteristics Favoring Ownership and Use of Private-Label Credit Cards: Travel Cards
      Table 6-6A: Demographic Characteristics Favoring Frequency of Use of Mass Merchandiser Retail Cards: Used Last Year
      Table 6-6B: Demographic Characteristics Favoring Frequency of Use of Other Retail Cards: Used Last Year
      Table 6-7A: Demographic Characteristics Favoring Frequency of Use of Mass Merchandiser Retail Cards: Used Last Month
      Table 6-7B: Demographic Characteristics Favoring Frequency of Use of Other Retail Cards: Used Last Month

Appendix I: Examples of consumer and trade advertising and promotions (available only with bound editions of this report)
Appendix II: Addresses of selected companies and Resources

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